Supply chain connectivity and the coronavirus disease pandemic.

 

The COVID-19 pandemic has exposed the major limitations of contemporary supply chains. The established practices of freight consolidation, lean inventories and just-in-time delivery have limited the resilience of international supply chains, leading to shortages of some critical goods and imbalances in freight delivery. Likewise, the pandemic has revealed a hidden precarity in the transport sector as entire segments, such as the aviation sector, small and medium transport operators, freight forwarders and many others, started crumbling when faced with the reduced demand, increasing operational restrictions and other challenges arising from the pandemic. Fractured supply chains and weakened transport and logistics capabilities adversely affect national capacities to implement the 2030 Agenda for Sustainable Development.

At the same time, the Asia-Pacific region has made great efforts to preserve transport connectivity during the pandemic (see figure I). Member countries of the Asian Highway network have maintained all or a significant part of their land borders open for freight. Two thirds of member countries have implemented special trade and transport facilitation measures, helping to ensure smoother movement of essential goods and, in many cases, of general freight. Freight transport has proceeded with limited interruptions along the Trans-Asian Railway network, making rail transport an even more vital link in international trade, especially for the movement of essential goods and medical supplies. Likewise, ports have remained operational for freight, supporting the bulk of global trade and preventing the total dismantling of global supply chains.

Note: The impact on rail and road freight shown in the table has been adjusted on the basis of the secretariat’s estimates to reflect the situation in Asia and the Pacific, which constitutes a departure from the global situation for the two modes. For air and maritime freight, the situation reflected in the table holds true at both the global and regional levels.

The pandemic has also created great momentum for digitization and shown that there is high potential for a more balanced and sustainable modal split of freight transport, as the use of rail has grown to compensate for the interruptions in road transport operations.

The full impact of the pandemic on the international freight transport sector has yet to be assessed. It varies significantly across regions and countries and diverges strongly across the segments of the freight industry (see table)

Still, it is clear that the connectivity disruptions wreaked by the pandemic are likely to have a strong and long-lasting effect on international trade. The latest World Trade Organization (WTO) estimates suggest that transport and travel costs have the highest potential to affect international trade during the pandemic.

 These costs account for 15% of trade costs in agriculture, 19% in goods-related services such as retail and wholesale, and approximately 31% in manufacturing. Owing to the scale of the impact and the severity of containment measures including additional inspections, reduced hours of operation and road and border closures, trade costs could increase by as much as 25%.

 Transport containment measures could reduce global freight transport volumes by up to 36% by the end of 2020, with the highest reduction projected for South-East Asia, Central Asia and parts of South Asia.

 Lastly, significant financial losses sustained by the transport sector will have a lasting impact on its competitiveness in the aftermath of the pandemic unless they are properly addressed in the recovery stage. While freight air transport is the most affected, the international road freight industry is expected to experience a turnover decline in 2020 of 18% or approximatively $652 billion. In Asia, the expected decrease is 21%. 10 Even if rail freight experienced a much lower decline than road freight and was particularly resilient in Asia, it could still bear an overall loss of $1.7 billion for 2020 and 2021.

 The above considerations should inform strategies to scale up and adjust the ongoing initiatives to improve freight connectivity in Asia and the Pacific.